The below lesson is an excerpt from my upcoming book, When Not If: A CEO's Guide to Overcoming Adversity, Forbes Book, January 2024.
Lesson. I had missed a cardinal rule of overcoming adversity: In the first place, never volunteer, offer information, or get involved willingly with the individuals and organizations charged to monitor, regulate, or penalize you. I facilitated them finding a case where there was no case to begin with. My foolish actions to volunteer, likely stemming from narcissistic desires to be important in our industry, served up our demise on a silver platter.
As a CEO with 100 overachieving associates, I should have understood that not everyone around us was an ally and that even supposed allies may actually have been adversaries. This thought was the anthesis to how I lived my life prior to the adversity that landed me in federal prison. I, naively and simplistically, believed everyone was mostly good and acted in good faith with good intentions.
For example, I believed all employees could be A-Players if I were only smart enough to recognize their unique gifts and reinforce them for success. I focused on helping people understand their success and the organization’s success were linked in a symbiotic win–win relationship. To the extent any of my employees underperformed I thought it reflected my own limitations as a leader.
I also believed government regulators were organized to protect the clients of MICG Investment Management, to ensure fair dealing, and create a level playing field for the financial services industry. Instead, I should have internalized Adam Smith’s teachings in The Wealth of Nations. In his 1776 book, Smith observed that human beings everywhere work in their own self-interest. How naïve and unsophisticated I was in dealing with the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Agency (FINRA), the main regulatory bodies ensuring the integrity of securities markets and the licensing and regulation of broker-dealers, respectively.
For almost two decades, the investment company I founded earned nearly perfect compliance and regulatory scores. Such an accomplishment was so rare the regional FINRA office termed MICG Investment Management “the golden child” for its pristine record of compliance. So, when the senior leaders of FINRA requested our firm participate in a joint SEC-FINRA beta test to improve efficiencies for company audits, I agreed and offered resources to participate.
My decision here was a terrible one, flowing from a destructive combination of naiveté and ego. On the naiveté side, I really didn’t realize that regulatory entities such as FINRA always have an adverse relationship with the entities they regulate. On the ego side, I was proud of how tightly MICG Investment Management was operating, and I wanted to get credit for it. This appalling decision to cooperate, which unexpectedly coincided with the 2008 Financial Crisis in the markets and the outing of Bernie Madoff's $50 billion hedge fund Ponzi scheme, was the catalyst that set our investment firm on its inevitable course to destruction.
FINRA’s Thomas Hughes led a fishing expedition that seemed to operate with virtually unlimited resources against our operations, whose resources were more limited than they should have been. Our position was weaker than it had to be, and I fault myself for making us more vulnerable. They directed us to produce literally hundreds of thousands of email copies, then lost them, and demanded we produce them again. Clearly, they were determined to find something.
Please learn from my mistakes. I made so many. Be more discerning and employ a healthy dose of cynicism to protect what you have built.
Have a great week!
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